You have been asked to estimate the rate of
return to investors in a leveraged buyout. The key calculation
is the exit valuation. You will base the exit valuation on the concept
"Equity=Enterprise Value - Net Debt"

You will
assume exit enterprise value is performed at a multiple of EBITDA which
equals the entry valuation.

The facts
are as follows:

The Target Company

Company purchase price:

600

million
ISK

Initial debt of company:

100

Initial EBITDA of company:

75

Growth rate of EBITDA:

7%

The Proposed Financing

Debt:

400

Annual amortization:

50

Management equity investment:

30

15%

Sponsor equity investment (convertible
preferred with 5% dividend)

170

85%

Management bonus:

3%

The Exit

Exit after

5

years

At exit multiple of

7.3

With cash of

50

Questions:

1. What is
the exit equity value?2. What
internal rate of return can sponsors expect? And management?